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The Office of Fair Trading (OFT) is investigating whether the sale of hotel room bookings on the internet breaches competition law, looking into whether an allegedly long-established pricing mechanism is anti-competitive.

An online reseller of hotel rooms complained to the OFT about a practice it said was called 'rate parity', in which hotels agree a minimum price for rooms. That reseller, Skoosh.com, claimed that the hotels it bought room bookings from were under pressure from other resellers to maintain those minimum prices.

"In the last five years I have received an endless stream of angry calls and emails from hotels. With real desperation in their tone at times, they demand that Skoosh removes their properties from its site or increase its prices so that they match the prices on the hotels’ own websites and all of their online partners. It’s never sounded right to me. What are they scared of?" wrote Skoosh director Dorian Harris on his blog.

"It’s all founded on a term which has seeped into industry parlance unchecked – ‘rate parity’. What it means is that all online retailers of hotel accommodation are ‘encouraged’ to sell individual hotels at the same rate as each other," he said.

"If you’re living in the real world you might notice more than a passing similarity between rate parity and price fixing," adds Harris. "Switch the words around a little and you can quickly see the connection. So, why is it acceptable to manage distribution like this in the hotel industry when we’d jump up and down if we saw similar in telecoms, or cars or just about anything else?"

Harris complained to the OFT, which has now announced that it will look into the issue.

"The OFT is conducting a formal investigation into suspected breaches of competition law in the hotel online booking sector and has written to a number of parties in the industry to request information," said an OFT statement. "The investigation is at a very early stage and the OFT will not be in a position to conclude whether it considers the law has been infringed until it has completed its investigation and assessed the available evidence."

Alan Davis, a competition law expert at Pinsent Masons, the law firm behind OUT-LAW.COM, said that the OFT is currently showing an interest in similar cases to Skoosh's, investigating whether practices are in breach of the law even if they have become a standard for the industry.

"Widespread and long-established price fixing is something the OFT appears increasingly interested in," said Davis. "In the construction sector recently an investigation resulted in 103 firms being fined almost £130m for a long-standing industry practice of 'cover pricing' which was found to be a form of bid rigging.

"In that case, the OFT made clear that the fact a practice is common or long-established in an industry is no defence to enforcement action and penalties," he said. "The OFT has also recently shown an interest in resale price maintenance (RPM), where companies try to control prices. It has looked at this in investigations into tobacco, dairy and grocery sales.

"This OFT investigation could end up being quite wide-ranging, and could increase in scope as it finds out more as the investigation progresses," said Davis.

Harris said on his blog that if left unchecked, the 'rate parity' practice could destroy competition in the hotel bookings industry.

"What happens when there is no price competition on hotels? It’s a bit difficult to say because we haven’t had a precedent for many decades outside of Soviet Russia. Meanwhile, unless there’s some serious intervention at government level we’ll soon find out," he said.

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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